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New impetus, or bottleneck?

It has emerged that South African President Jacob Zuma will personally head a new ‘Infrastructure Commission’, which will be set up to improve visibility and coordination around South Africa’s R860-billion public investment drive, which has so far failed to live up to its growth and development promises.

The decision was made at Cabinet’s mid-year lekgotla, and Minister in The Presidency Collins Chabane said that the new body would be similar in nature to the high-level structure established to coordinate government projects in the run up to the successful 2010 FIFA World Cup.

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It would include all spheres of government, various national departments and the infrastructure-focused State-owned enterprises (SoEs), and would position the infrastructure programme at the very heart of government’s aspiration to build industry, create jobs and generate skills around the State’s multidecade investment plans.

Chabane said that it would also seek to clear the hurdles that have tended to constrain a number of the mega-projects, while also ensuring “value for money”.

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The elevation of infrastructure comes at a time when South Africa’s construction economy is effectively in recession, and serious questions are being asked about the ability of government and many of the SoEs to actually deliver on their capital expenditure (capex) budgets.

Capex under spending was a chronic problem, particularly at the local government level. But key SoEs such as Eskom and Transnet had also regularly missed projected expenditure targets. In fact, Eskom failed to achieve its budget for the past two financial years and missed its 2010/11 target by a whopping R25.1-billion. The utility had since reiterated its commitment to meeting its yearly capex targets and said that it aimed to spend R75-billion during the year to March 31, 2012.

Economic Development Minister Ebrahim Patel said that there was serious concern within government that the contribution of infrastructure expenditure to gross domestic product had fallen to around 9% and that it was projected to decline to below 8% in the coming two years.

The fall was doubly concerning given that the country still had material infrastructure backlogs, which were hampering the development of new industries and had led to South Africa missing an opportunity to export additional coal, iron-ore and manganese during the precrisis commodity boom and again during the current upswing.

The new commission would seek to arrest the decline by developing a ten-year rolling priority project pipeline, which would be updated yearly. It would also seek to unblock regulatory and funding constraints, set five-year project priorities, create certainty about the expected developmental and industrial spin-offs, support the revitalisation of rail infrastructure, gain a handle on the life-cycle maintenance challenge, and improve the linkages to poor and rural communities.

The lekgota also decided that the Infrastructure Commission should ensure systematic selection, planning and monitoring of large projects.

Cabinet also confirmed that a “small high-level team” would be established to “unblock private sector projects that could have a “substantial impact on employment”, with job creation having again been identified as the top priority of government.

South Africa’s unemployment climbed to 25.7 % in the second quarter, leaving 4.5-million work seekers jobless.

The team would focus on clearing administrative backlogs that were constraining certain investments, facilitating the closure of public infrastructure gaps and assess the costs and benefits to the public purse of some of the proposed mega-projects, such as Sasol’s proposed Mafutha coal-to-liquids project, in the Limpopo province. Measures would include tougher action to address the concentration of ownership in the South African economy and pursuing plans to expand the productive sectors of the economy and improve competitiveness.

It will now be extremely interesting to assess whether this greater centralisation will indeed unblock key public and private projects, or whether it will simply create an entirely new bottleneck.